31 October 2011 11:22 AM

Why we need to defend the City against the Financial Transaction Tax

At last David Cameron has started defending the City of London. Dave has pirouetted in the past week from being a Europhile and not listening to his backbenchers and the electorate who want a referendum on Europe to then playing the Eurosceptic leader in promising to defend our city institutions from the “Brussels assault on the City of London”.

If we are again to start trusting the government, the one thing that Dave needs to absolutely nail is the Financial Transaction Tax (Tobin Tax). He needs to say that this is a tax on jobs and a way of raising money for pet projects, circumventing sovereign governments’ ability to veto higher spending. France and Germany’s Tobin Tax ruse would raise E80.9bn of which E58.3bn would come from UK based businesses.

If implemented, the EU budget for 2014-20 would raise spending by 11%. Make no mistake, the EU sees this as a budget raising exercise and, as it only really affects the UK, they do not care about the jobs that will be lost in the UK. They have already stated that part of this money would be used to combat climate change and other pet projects. This is an ingenious way of raising new taxes without having to argue for increased budget spending when all nations are arguing for a net reduction in contributions.

The coalition play lip-service to Brussels with the Treasury saying it is a good idea while at the same time George Osborne bat’s his eyelashes at the Tory City donors, saying that it can only work if it is implemented globally.

They need a history lesson. When Sweden introduced a FTT levy of 0.5 per cent, 60 per cent of the 11 most actively traded Swedish shares and over 50 per cent of Swedish equities had moved to London by 1990. Naturally, this affected revenues. The tax raised only one thirtieth of the promised proceeds in Sweden. The UK Robin Hood Tax Campaign (which supports the introduction of FTT) assumes that £20billion can be removed from the UK financial sector without causing major disruption, highlighting the campaign’s economic illiteracy.

Its colossal failure in Sweden should act as a warning to us. London is currently the leading centre for foreign exchange and stands to lose more than any other European nation.

The City employs over half a million people and respected economists like Tim Congdon estimate that around 25% of these jobs will be lost if these proposals go ahead. And remember that most of the high tax-paying bankers with bonuses will go off-shore taking their spending power with them. The City contributes £52 BILLION pounds in tax, that’s 100,000 nurses or 10 Olympic stadiums.

Britain’s export of financial services grew by 15% a year for over 15 years and contributes 5% to our GDP, no small amount.

But if you think it’s good riddance to the ill-gotten gains of that tax, think about the back office staff, the IT workers, the secretaries, the sandwich makers, the retailers and the facility management employees – they will all lose their jobs and will not be replaced.

Michael Spencer, ICAP boss, and Conservative party donor speaking about the proposed financial transation tax said: "This tax would destroy the City and cost the Exchequer billions, but it would benefit Brussels. Companies like ICAP will simply move elsewhere outside the EU if Nicolas Sarkozy and Angela Merkel push ahead with this silly tax."

The City is the powerhouse of the UK economy (and that is the fault of successive governments who have failed to support our manufacturing industries which have also gone East). We cannot delude ourselves that they are not and that our leading industry can solve the world’s perceived problems like Brendan Barber, general secretary of the TUC would like in areas such as tackling climate change – and the jury is out on that one, global poverty, paying off the Euroland public sector borrowing debts, with the UK’s financial institutions paying 80% of other people’s debts. No, we have other methods of dealing with these issues – the G20 and learning to live within our means.

Even were it imposed globally, a Tobin tax would still slash transaction volumes, make markets less liquid, increase the cost of raising finance and punish companies that operate in more than one currency.

MEPs have argued in the past that the tax would collect £20bn from UK trades alone, an equivalent to almost half of all corporation tax receipts. That is of a similar order of magnitude as the entire global profits of UK-based universal banks – though it would be paid for by thousands of financial firms that operate here and their investors, including pension funds and insurance firms, whose returns from investments would be decimated. It is absurd to believe that what would probably be the biggest ever tax hike (much of it sent to Brussels) could quietly be imposed on the City without any consequences in terms of jobs.

Others believe the real cost would be even larger. The World Federation of Exchanges puts the total value of financial transactions in the UK at £600 trillion a year. Given that Tobin supporters believe taxed transactions would remain at identical levels (a silly suggestion, of course, but the crucial assumption that explains why pro-Tobin folk believe their tax will raise so much) this means that the tax could yield £40bn-£300bn. There is of course no way that such sums would ever be raised. Transactions would simply cease to happen. Tens of thousands of jobs would be lost overnight and the City of London would be destroyed. The tax would raise a couple of billion at most, while increasing volatility by forcing traders to concentrate on larger, less frequent trades.

If the government refuses to make the intellectual and economic case against a Tobin tax, it will actually make its long-term implementation more likely. Just like the implementation of the Agency Workers’ Directive which was implemented on 1st October. Again, this directive has hit the UK more than any other European country. David Cameron said he had looked at legal ways of preventing its implementation. Vince Cable’s department said it would go ahead. It is estimated that 500,000 jobs could be lost by Christmas.

Those deluded souls like Brendan Barber, General Secretary of the TUC, says that this tax is a good thing who believe they have discovered a new way of solving the world’s problems by taxing financial transactions will have achieved nothing other than crippling the economy.

We have to get wise to what is happening in the Far East. HSBC – employing 10,000 in Canary Wharf - are in negotiations with Hong Kong to go ‘home’. It is a tempting offer. The Far East beckons. Beware the West. Not only do we face fierce competition from them but also Brazil, South America, India and Indonesia. While Brussels and left-wing pressure groups woo the coalition, these emerging economies are wooing our financial industries.

We cannot continue to allow the EU to decimate our jobs market. Most of these mad ideas dreamt up by Eurocrats do not affect other Eurozone countries as much as the UK. So Dave, after discrediting yourself in the Euro debate last week, now is your chance to show that you will stand up for our jobs and our revenues. This is not about repatriation of powers, it’s about stopping it before it happens.

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JANICE ATKINSON-SMALL

Janice is a director of a new, centre-right think tank, WomenOn ... which seeks to challenge the left dominated Guardianista feminist view of the world of women which does not represent ordinary women. Women On … researches the issues facing women today, and promotes ideas and policies which enable all women to reach their full potential – economically, socially, culturally and politically, but not at the expense of men.
In politics she was the director of Conservative Action for Electoral Reform (but did not support AV) and had provided communications for MPs, MEPs and campaign groups. She stood for the Conservative Party in the 2010 General Election in Batley and Spen but is now a member of UKIP.
Prior to becoming involved in politics, Janice ran her own successful marketing communications business. She is divorced with two teenage sons and is about to re-marry.
www.womenon.org